lecture 6

Question 1

AS (P-Y)

Answer 1

aggregate supply relation. captures effect of output and price level.

Question 2

AS relation properties

Answer 2

an increase in output leads to an increase in the price level, an increase in the expected price level leads to an increase in the actual price level

Question 3

equilibrium in different time frames

Answer 3

in the SR, output can be above or below the natural level of output. in the medium run, it eventually returns to the natural level of output.

Question 4

shocks and propagation mechanisms

Answer 4

business cycles/output fluctuations are movements in output around its trend. the economy is constantly hit by shocks to aggregate supply/demand. Each shock has dynamic effects which is called the propagation mechanism.